We recently published a list of the 10 Innovative Healthcare Stocks to Watch in 2025. In this article, we are going to take a look at where Eli Lilly and Company (NYSE:LLY) stands against the other innovative healthcare stocks to watch in 2025.

In the US, healthcare costs and prices have been increasing. According to the Centers for Medicare & Medicaid Services, U.S. healthcare spending increased 7.5% from 2022 to $4.9 trillion in 2023. In 2023, the healthcare industry made up 17.6% of the US economy, an increase of 17.4% from 2022. The growth of Medicare and private health insurance is the two leading causes of this increase.

Impact of Tariffs on the US Healthcare Industry and China Relations

The impact of tariffs on this continuing trend has become a significant bone of contention in the healthcare industry as more and more US corporations turn to China for agreements on the next breakthrough chemical, whether in the areas of obesity or cancer. Carlo Rizzuto, managing director of Versant Ventures, spoke on CNBC’s “Fast Money” on February 7 about the impact of tariffs on healthcare. Rizzuto says that tariffs may impact the sector in two ways. Products made in China and sold in the US or other countries would be the first. The industry would need to watch how the tariffs are used in the market to comprehend how they would impact such trade operations.

Second, and more precisely, the US healthcare industry relies heavily on China as a basis for contract production and research. Consequently, anything that raises that price is probably going to make the market more difficult. Cost hikes won’t help the healthcare industry’s management, which is already under pressure from investors.

Speaking on China’s enormous impact in the pharmaceutical and healthcare sectors, Rizzuto said that the vast majority of healthcare companies use a Chinese CRO or manufacturing partner in some capacity during the research and development phase. As a result, it significantly affects how the nation’s biotech and pharmaceutical industries function. This trend is rather common in businesses of all sizes.

In other words, the lack of infrastructure to facilitate the transfer prevents healthcare corporations from reshoring all of their externalized R&D and production to the United States. Therefore, it is hard to imagine how such a large-scale reshoring might occur. The amount of tariffs imposed can be used to determine the expenses of achieving this objective linearly.

According to McKinsey, healthcare EBITDA will rise from a starting point of $676 billion in 2023 to $987 billion in 2028 at a 7% CAGR. Recovery from post-pandemic lows is anticipated to spur progress in several areas, even though development is anticipated to be faster in some (such as specialized pharmacy and HST). Software platforms are essential to the healthcare ecosystem because they let payers and providers operate more effectively in a complex environment.

By automating procedures, fostering data connectivity, and producing actionable insights, technological innovation (such as generative AI and machine learning) keeps providing opportunities for stakeholders from all industries. McKinsey predicts that increased utilization and pipeline expansion (as in cancer) will result in a considerable increase in specialty pharmacy income. Specialty pharmacy profit pools are continuing to grow as a result of the rise in the use of specialty medications.

Our Methodology 

For this article, we began by screening the top holdings of the iShares U.S. Healthcare ETF (IYH) to focus on prominent companies within the U.S. healthcare sector. From this list, we selected the top 10 holdings based on their weight in the ETF portfolio. We then ranked these stocks according to the number of hedge funds holding positions in each company as of Q4 2024, based on data from Insider Monkey’s hedge fund tracking database.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

Eli Lilly and Company (NYSE:LLY)

Number of Hedge Fund Holders: 115

Eli Lilly and Company (NYSE:LLY), a global pharmaceutical company based in Indianapolis, develops and markets medications across the US, Europe, Japan, China, and other regions. The company said on February 26 that it would invest at least $27 billion to construct four new manufacturing facilities in the US to meet the increasing demand for its diabetes and weight loss medications and to further the development of new drugs.

Eli Lilly and Company (NYSE:LLY) had a great year in 2024, exceeding its initial projection by $4 billion and seeing a 32% increase in annual revenue over the previous year. Revenue increased by 45% in just the fourth quarter due to the success of recently released items, which brought in over $3.1 billion. Mounjaro and Zepbound were particularly well-liked. Along with strong growth in immunology, neuroscience, and oncology, the business also witnessed a 20% gain in revenue from its non-incretin portfolio. A positive product mix helped the gross margin increase to 83.2% in the fourth quarter. Investments in early and late-stage initiatives resulted in an 18% increase in research and development costs. Due to its robust sales of new items, operating income more than doubled to $5.6 billion.

Eli Lilly and Company (NYSE:LLY) declared on February 28 that Jaypirca (pirtobrutinib), a reversible Bruton’s tyrosine kinase (BTK) inhibitor, has been recommended for approval by the European Medicines Agency’s (EMA) Committee for Medicinal Products for Human Use. Adults with relapsed or refractory chronic lymphocytic leukemia who have already taken a BTK inhibitor are the target population for this treatment. The recommendation is currently awaiting the final evaluation by the European Commission, which may be a major impetus for the company if it is approved.

Overall LLY ranks 2nd among the innovative healthcare stocks to watch in 2025. While we acknowledge the potential of LLY as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than LLY but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.

Disclosure: None. This article is originally published at Insider Monkey.